As Canadian bankruptcy trustees at Smythe Insolvency, we are frequently asked by our clients if there is an alternative to bankruptcy. The good news is that there is! The alternative we're going to talk about today is called a consumer proposal. A consumer proposal is a formal offer to your creditors where they agree to settle for less than the full amount owe them. Before any offer can be forwarded to your creditors, you must review your personal financial situation with a trustee.
A trustee can help you weight a consumer proposal vs. bankruptcy in Canada, and if you decide to go the route of a consumer proposal, the trustee will review your assets, your expected monthly income for the next 9 - 21 months, and your family budget.
With this financial information, you and your trustee can then calculate how much (if anything) will be payable to creditors if you file for bankruptcy. We need to start the calculations at bankruptcy because bankruptcy is the least amount your creditors could expect in any formal repayment plan. Therefore, this is the place to start your negotiations with your creditors.
Benefits of a Consumer Proposal Vs. Bankruptcy in Canada
A consumer proposal will always offer more to your creditors than they could expect in a bankruptcy. So, why choose a consumer proposal? There are many reasons why debtors may choose a consumer proposal, but the main reason is that some people feel better when they can pay back at least a portion of their debts.
Consumer proposals are also more flexible than bankruptcies because, once your creditors agree to a payment amount, you can pay this amount off as quickly as your financial situation will allow, and with all consumer proposals, there is no ongoing interest. Consumer proposals might also be a preferred alternative for professionals, as some professionals have personal limits in their licensing if they are personally bankrupt. This is generally not the case if they've only filed a consumer proposal.
The other reason why a consumer proposal is better than bankruptcy is that your credit score will be better than it would be if you filed for personal bankruptcy. Let's consider an example of what a consumer proposal may look like. Let's say you owe $30,000 in credit card debt.
Understanding the Advantage of a Consumer Proposal Over Bankruptcy
You could offer anything to your creditors, but let's assume for this example that you decide to offer $300/month to your creditors for 36 months or $10,800 over three years. Our trustee would help you put this offer together and send it to your creditors. Your creditors will have 45 days to decide whether or not to accept your proposal or make a counter0offer. If at least 50% of your creditors vote to accept your proposal, then the proposal itself is binding on all of your creditors, even those that did not vote.
Contact Smythe Insolvency today, and we'll help you understand the differences between a consumer report and bankruptcy.Consumer Proposal Vs Bankruptcy Canada